Europe fails to hold early gains, closes lower

Oil producers see volatile moves; SAP shares climb

By

SarahTurner

LONDON (MarketWatch) - European markets couldn't hold early gains on Monday, as a reversal in the fortunes of oil producers and declines for drug companies offset gains from metals producers, technology firms and telecommunications services companies.

A turbulent session for oil, in which crude rose as high as $56.36 and fell as low as $55.10 a barrel, sapped early gains from energy giants including BP (BP)
BP, -0.55%
which closed 0.8% lower.

Among other indexes, the U.K.'s FTSE 100 index (UKX) dropped 0.4% at 6,194.20, while the German DAX Xetra 30 index (1876534) rose 0.2% to 6,607.59 and the French CAC-40 index (1804546) gained a fraction of a percentage point to close at 5,518.59.

ABN Amro is forecasting a 15% rise in fourth-quarter license revenue for the company and said that a pre-announcement is also possible.

Telecom stocks such as Deutsche Telekom
DT
(555750) --up 1.2% -- also advanced as investors reconsidered the sector following last year's underperformance.

"We have seen a bit of sector rotation," said Lars Kreckel, a European equity strategist at Dutch bank ABN Amro, noting that telecoms have been one of the beneficiaries of this trend.

"We've had a good start to the year. We're going for a 10% increase in the European market this year," said Kreckel.

Planes and cars

British Airways
BAB, +0.10%
(BAY) shares eased back from earlier highs to trade down 0.8%. The company earlier said that it has struck a deal with unions to fix its hefty pension deficit. See full story.

Germany's Volkswagen (766400) also couldn't hold early gains, with the automaker losing 1.1%. It said over the weekend that it sold 5.73 million vehicles in 2006, up 9.3% from the previous year, as Europe's largest car maker grew strongly in China and other developing markets. See full story.

Volkswagen investors are concerned that the potential departure of key executive Wolfgang Bernhard after a board meeting on Wednesday could spell the end of restructuring efforts at Europe's largest carmaker. See full story.

An auto gainer was luxury-car maker Porsche (693773). Shares rose 3.2% after it was upgraded to buy at Goldman Sachs, with the bank citing its positive view on earnings and cash flow at Volkswagen as a reason for the move.

Shares in France's PSA Peugeot Citroen (012150) rose 1.4%. It estimated 2007 demand would come in at least at the same level as in 2006 and said sales in markets outside Western Europe continue to increase, led by the launch of new Peugeot and Citroen models.

In 2006, sales slipped 0.7% to 3.37 million units.

Retail, publishing

On the downside, KarstadtQuelle (627500) shares lost 3.7% after the German retailer said adjusted sales rose just 1% in the fourth quarter of 2006 to 4.2 billion euros. Department store sales rose 4.4%, while sales at the company's mail-order division and travel operation Thomas Cook were virtually flat.

The company said it will further focus over the next few weeks on consolidation in the European tourism market. In late 2006, it agreed to buy 50% stake of Thomas Cook that it didn't already own from partner Deutsche Lufthansa (823212).

Noting press reports on Friday that suggested it's planning to bid for Anglo-Dutch publisher Reed Elsevier (REL)
RUK
analysts at Credit Suisse said: "Although we understand no official talks are ongoing between the two companies, this combination could offer prospect for value creation and could therefore attract private-equity interest."

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